How Much House Can I Afford?
Estimate affordable home price from income, debt, and down payment.
About the How Much House Can I Afford?
How much house you can afford is set by your income, your existing debts and the rate -- not by what a lender is willing to approve, which is usually more.
How to use it
- Enter your gross annual income.
- Enter your monthly debt payments.
- Enter the rate and term you expect.
The formula
Lenders do not ask what you want to spend. They apply two ratios to your gross income and lend against the smaller answer.
Front-end ratio = housing payment ÷ gross monthly income ≤ 28%
Back-end ratio = (housing + all other debt) ÷ gross monthly income ≤ 36%
The critical detail is that the 28% covers PITI — principal, interest, taxes and insurance — not just the loan payment. On $75,000 a year the cap is $1,750 a month, and once roughly $450 of tax and insurance comes out, only $1,300 is left to service the loan itself. At 6.5% over 30 years that supports about $205,700 borrowed, not the $276,900 you get by forgetting escrow.
The back-end ratio is what quietly disqualifies people. A $500 car payment does not reduce your budget by $500 — it reduces the housing payment allowed under the 36% test by $500, which at these rates is roughly $79,000 of house.
Worked examples
| Gross income | 28% cap (PITI) | Tax + ins. | Available for P&I | Loan at 6.5% | With deposit |
|---|---|---|---|---|---|
| $60,000 | $1,400 | $380 | $1,020 | $161,375 | $176,375 (15k down) |
| $75,000 | $1,750 | $450 | $1,300 | $205,674 | $225,674 (20k down) |
| $100,000 | $2,333 | $600 | $1,733 | $274,232 | $324,232 (50k down) |
| $120,000 | $2,800 | $700 | $2,100 | $332,243 | $392,243 (60k down) |
These figures are lower than most affordability calculators return, and the reason is the third column. Subtracting tax and insurance before solving for the loan cuts about 25% off the answer. The optimistic version is not wrong about the ratio — it is wrong about what the ratio covers, and the difference shows up as a payment you cannot actually make.
Common mistakes
- Using net pay instead of gross. Every lending ratio is calculated on income before tax. Using take-home pay understates what you qualify for by roughly a third, which is the one error in this list that costs you a house rather than saving you from one.
- Solving the loan from the full 28% cap. The cap includes escrow. Take tax and insurance out first, or you will overstate the affordable price by around a quarter.
- Ignoring the back-end ratio. Student loans, car payments and card minimums all count. If your other debts already take 15% of gross income, the 36% test leaves 21% for housing — and that, not the 28%, is now your real limit.
- Confusing what you qualify for with what you can afford. The ratios are a lender's risk threshold, not a budget. They make no allowance for childcare, retirement saving, commuting, or the maintenance a house demands the moment it is yours.
Terms explained
- Gross monthly income
- Total pay before tax and deductions, divided by twelve. Include reliable bonus or overtime only if you can document a two-year history of it.
- Front-end ratio
- Housing costs as a share of gross income. The conventional ceiling is 28%, though some programmes stretch further.
- Back-end ratio
- All monthly debt including housing, as a share of gross income. 36% is conventional; up to 43% is common, and 50% appears on some government-backed loans.
- DTI
- Debt-to-income, the general name for these ratios. The single number that most determines whether an application is approved.
- PITI
- Principal, interest, taxes and insurance — what the 28% is measured against.
- Closing costs
- Fees due at completion, typically 2% to 5% of the price. Separate from the deposit, and frequently the reason a purchase is delayed.
Common questions
- Why is this lower than other affordability calculators?
- Because tax and insurance are subtracted before solving for the loan. The 28% rule covers PITI, so a calculator that applies the whole 28% to principal and interest overstates the answer by roughly 25%.
- Does my deposit change what I qualify for?
- Not the ratios — those are driven by income and debts. A deposit raises the price you can reach, because it is added on top of the loan, and above 20% it removes PMI, which frees part of the payment for principal.
- How much do my other debts really cost me?
- Under the 36% back-end test, each dollar of other monthly debt removes a dollar from the housing payment you are allowed. At 6.5% over 30 years, a $500 car payment is about $79,000 of borrowing power.
- Should I borrow the maximum?
- Rarely. The ratios ignore childcare, retirement contributions, commuting and maintenance. Many people find the comfortable number is well under the qualifying one.
- What credit score do I need?
- Conventional loans generally start around 620, with the best rates near 740 and above. The score does not change the ratios; it changes the rate, which changes how much house a given payment buys.
- Do I need 20% down?
- No. Conventional loans go to 3%, FHA to 3.5%, and VA and USDA to zero for those eligible. Below 20% you pay mortgage insurance, which is a real monthly cost rather than a penalty.
- How much should I keep aside for closing costs?
- Budget 2% to 5% of the purchase price, in addition to the deposit. Running your savings to zero at closing is how a manageable mortgage becomes an unmanageable one after the first repair.
- Does a higher interest rate change how much house I can buy?
- Considerably. The payment is capped by your income, so a higher rate buys less principal. Moving from 6.5% to 7.5% cuts roughly 10% off the loan a $1,300 payment supports.